Pepsi anchor bottlers Pepsi Bottling Group and PepsiAmericas will drop 7UP and take on Pepsi's Sierra Mist in 2003 (BD 6/7/02). Third anchor bottler Pepsi Bottling Ventures "possibly makes same move soon," says informed source. Pepsi introduced Sierra Mist late 2000 after company's previous lemon-lime entry -- Storm -- was discontinued. Sierra Mist began life as brand for Pepsi bottlers without 7UP. Before these shifts, 39.9% of 2001 7UP volume handled by Pepsi system; balance by 3rd-tier bottlers. Industry executives have speculated since Sierra Mist's introduction that big Pepsi bottlers would one day make this move. Senior industry executive says, "this is a market changer." Notes movement of 7UP to 3rd-tier bottlers "creates much more competition." Other executive points out that some 3rd-tier bottlers will now get a "lead brand" which will help their businesses and "their entire portfolios." For Sierra Mist, move virtually assures substantial volume increase.
Map; key bottlers. PBG and PepsiAmericas are #2 and #3 7UP bottlers, respectively. PBG accounts for 14.1%; and PepsiAmericas 6.3%. Map shows affected 7UP territories. PBG's 7UP franchises in gray; PepsiAmericas in black. Dr Pepper bottlers. PBG and PepsiAmericas are also major Dr Pepper bottlers. PBG is #3 Dr Pepper bottler with 16.2% of volume; PepsiAmericas is #4 Dr Pepper bottler with 6.3%. 7UP shifts do not affect Dr Pepper.
Executives. PepsiCo. Dawn Hudson, president Pepsi North America calls move "win-win." Adds this will "make Sierra Mist a true national success story." PBG. CEO John Cahill calls Sierra Mist "immediate winner ... We can now focus the sales and execution muscle of our entire organization behind a single lemon-lime soda." PBG says 7UP represents 2% of its U.S. volume. Notes it "anticipates a modest, negative impact to its U.S. volume in 2003, but greater volume growth long-term." Cahill also notes Sierra Mist marketing support from Pepsi will increase. Cadbury. Dr Pepper/Seven Up (DPSU) president Doug Tough says DPSU "surprised by this decision, given intrinsic value of 7UP." But adds DPSU "entirely comfortable" with 7UP moving to 3rd-tier which will give "greater focus to 7UP." Cadbury also notes this 7UPvolume "will now transfer back to DPSU, free of charge, and then be refranchised to" 3rd-tier bottlers.
Cases. 7UP's volume in 2001 was 189.2 mil cases for brand 7UP and about 262 mil cases for trademark 7UP (diet, cherry, etc.). Industry executive estimates about 18 mil cases of 7UP move via fountain. If so, then bottlers handle about 244 mil cases of bottle/can; PBG accounts for 14.1%, PepsiAmericas 6.3%. Additionally, Pepsi Bottling Ventures -- not involved in current shift -- accounts for 2.3%. Biggest 7UP bottler is Dr Pepper/Seven Up Bottling Group which handles 40.9% of brand's bottle/can volume.
Sierra Mist. Volume of Pepsi's lemon-lime last year was about 51 mil cases, including regular/diet. Shift of several big Pepsi bottlers will likely cause huge spike in Sierra Mist volume, as change means brand will access nearly 90% of U.S. population vs 60% before shift.
7UP implications. After switch, 7UP will likely lose some volume initially, as Pepsi bottlers generally have greater vending/cold-channel reach than 3rd-tier bottlers. In future, however, 7UP may benefit. After Coke/Pepsi bottlers dropped Cadbury's Sunkist and A&W in mid-1990s, brands went into 3rd-tier. Their volume dropped but then began upward trajectory which has continued. Many bottlers see that pattern repeating with 7UP. 3rd-tier bottler: "We give a damn about it, the blue guys don't." Plus 3rd-tier bottlers will gain financially. Bottler says 7UP worth about 25¢-50¢/case in EBITDA to bottlers in well-developed market; 5¢-10¢/case where "it's mainly in supermarkets."
Analysis. BD analyzes impact on 3rd-tier of PBG and PepsiAmericas dropping 7UP. For this analysis, it is assumed that where Pepsi bottlers drop 7UP, current RC bottlers in corresponding territories would gain 7UP franchises that parallel their RC territories. Cadbury system executive notes, "that's a pretty good assumption." Highlights. Analysis shows: 1) large 3rd-tier bottlers Dr Pepper/Seven Up Bottling Group (DPSUG), All-American, Southeast-Atlantic and Polar likely gain large swaths of 7UP territory and population. 2) 7UP franchises would shift in Atlanta, Nashville, Seattle, New Orleans and Miami, among other big and medium-sized cities. 3) some smaller 3rd-tier bottlers could gain 7UP territories.
Major shifts. Cadbury will decide which bottlers will get 7UP in various markets. Among top markets affected: 1) 7UP in Atlanta, currently handled by PBG, may move to Jacksonville, Florida-based Southeast-Atlantic. SEAC may also pick up 7UP in Jacksonville and Miami, Florida, as well as northwest Georgia. 2) 7UP in Nashville/Chattanooga could move from PBG to All-American, based in Oklahoma City. All-American could also gain large swaths of 7UP in Colorado, Kansas, Oklahoma, Tennessee and Wisconsin from PBG. 3) New Orleans and Baton Rouge, Louisiana 7UP territories now owned by PepsiAmericas; 3rd-tier bottler there is Harahan, Louisiana-based Big Shot/RC Beverages.
DPSUG. Big 3rd-tier bottler -- partly-owned by Cadbury and run by Jim Turner -- stands to gain 7UP rights in metro Minneapolis and parts of Minnesota, Nebraska, New Mexico, Kansas, West Virginia and Pennsylvania from PBG and parts of North Dakota, South Dakota, Minnesota and Missouri from PepsiAmericas. All-American. Could gain parts of Colorado, Kansas, Oklahoma and Nebraska from PBG. Plus. 1) Tucson, Arizona-based Kalil Bottling could get 7UP territories in Arizona, New Mexico, Colorado and Utah from PBG. 2) Worcester, Mass.-based Polar stands to gain franchises in Upstate New York, Massachusetts and Connecticut from PBG. 3) Davis Beverage Group, in Bethlehem Pennsylvania, could pick up 7UP in about half of its RC franchise territory. 4) numerous single-franchise RC bottlers in Arkansas, Louisiana, Mississippi and Texas overlap 7UP territories held by PBG and PepsiAmericas.
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